Listed Below Are Some Provisions That Are Often Contained in Bond

question 60

Multiple Choice

Listed below are some provisions that are often contained in bond indentures.Which of these provisions,viewed alone,would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?
​1) Fixed assets are used as security for a bond.
2) A given bond is subordinated to other classes of debt.
3) The bond can be converted into the firm's common stock.
4) The bond has a sinking fund.
5) The bond has a call provision.
6) The indenture contains covenants that restrict the use of additional debt.

• A) 1,3,4,6
• B) 1,4,6
• C) 1,2,3,4,6
• D) 1,2,3,4,5,6
• E) 1,3,4,5,6

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Definitions:

Lessor's Implicit Rate

The interest rate a lessor effectively charges a lessee in a lease agreement, often used to calculate the present value of minimum lease payments.

Incremental Borrowing Rate

The interest rate a company would have to pay if it borrows funds to finance a lease or purchase of an asset.

Discount

A reduction from the usual cost of something, often applied to incentivize purchase.

Minimum Lease Payments

The least amount over the leasing term that the lessee is obligated to pay, and which may include a residual value guarantee, taxes, fees, and interest expense.